Question 1

SWIFT is an international messaging system used by banks. What does SWIFT primarily facilitate in cross-border banking?

Accepted Answer

SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a secure messaging network that enables banks to send standardised financial messages for international fund transfers, trade finance, and settlement instructions. It does not directly transfer funds but provides the communication infrastructure for banks to instruct each other. Therefore, answer is C.

Question 2

The Asian Infrastructure Investment Bank (AIIB) was established in 2016 with its headquarters in which city?

Accepted Answer

The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank established in 2016 with headquarters in Beijing, China. AIIB was created to finance infrastructure development in Asia and is a relatively new institution compared to ADB and World Bank. India is a founding member of AIIB. Therefore, answer is B.

Question 3

Which Act replaced the Foreign Exchange Regulation Act (FERA) and is currently enforced by the RBI to regulate foreign exchange transactions in India?

Accepted Answer

The Foreign Exchange Management Act (FEMA) was enacted in 1999 and replaced FERA 1973. FEMA is the primary legislation governing foreign exchange in India and is administered by the RBI. It shifted the focus from restriction (under FERA) to management and facilitation of foreign exchange. Therefore, answer is B.

Question 4

The International Monetary Fund (IMF) issues a basket currency called SDR. What does SDR stand for?

Accepted Answer

SDR stands for Special Drawing Rights. It is an international reserve asset created by the IMF in 1969 to supplement member countries' official reserves. SDR is a basket of five major currencies (USD, EUR, CNY, JPY, GBP) and is used for IMF lending and as a store of value by central banks. Therefore, answer is A.

Question 5

Which of the following is NOT a member institution of the World Bank Group?

Accepted Answer

The World Bank Group consists of five institutions: IBRD (International Bank for Reconstruction and Development), IDA (International Development Association), IFC (International Finance Corporation), MIGA (Multilateral Investment Guarantee Agency), and ICSID (International Centre for Settlement of Investment Disputes). The Asian Development Bank (ADB) is a separate multilateral development bank headquartered in Manila, not part of the World Bank Group. Therefore, answer is D.

Question 6

Under the Foreign Exchange Management Act (FEMA) 1999, which of the following best describes the primary objective of FEMA?

Accepted Answer

FEMA 1999 replaced the Foreign Exchange Regulation Act (FERA) 1973 and was enacted to facilitate external trade and payments, promote orderly development of foreign exchange markets in India, and ensure maintenance of foreign exchange reserves. Unlike FERA, which was restrictive in nature, FEMA adopts a liberal approach while maintaining RBI's regulatory oversight. The Act is enforced by the RBI and applies to all transactions involving foreign exchange in India. Therefore, the answer is B.

Question 7

Which international organization uses the Special Drawing Rights (SDR) as its unit of account, and India is a member with voting rights proportional to its quota contribution?

Accepted Answer

The International Monetary Fund (IMF) uses SDR (Special Drawing Rights) as its unit of account and a supplementary international reserve asset. SDR is a basket of five major currencies: US Dollar, Euro, Chinese Yuan, Japanese Yen, and British Pound. India is one of the 190 member countries of the IMF and holds a quota that determines its voting rights and access to IMF resources. India is the 10th largest economy in the IMF by quota. Therefore, the answer is B.

Question 8

SWIFT (Society for Worldwide Interbank Financial Telecommunication) is primarily used for which purpose in international banking?

Accepted Answer

SWIFT is a secure messaging system used by banks and financial institutions worldwide to transmit standardized financial messages for international fund transfers, trade finance, and other cross-border transactions. SWIFT does not hold funds itself; it only facilitates secure communication and message standardization between banks. SWIFT operates under the oversight of central banks and financial regulators, including the RBI for Indian banks. Therefore, the answer is C.

Question 9

The Asian Development Bank (ADB) was established in 1966 with its headquarters in Manila. Which of the following statements about India's membership in ADB is correct?

Accepted Answer

India is a founding member of the Asian Development Bank (ADB), which was established in 1966 with headquarters in Manila, Philippines. As a founding member, India has been part of ADB since its inception and holds significant voting rights and borrowing privileges. ADB is a multilateral development bank focused on financing infrastructure and development projects in Asia and the Pacific region. Therefore, the answer is A.

Question 10

The Asian Infrastructure Investment Bank (AIIB) was established in 2016 with its headquarters in Beijing. Which statement correctly describes India's role in AIIB?

Accepted Answer

The Asian Infrastructure Investment Bank (AIIB) was established in 2016 with headquarters in Beijing, China. India is a founding member of AIIB and is one of the largest shareholders after China. AIIB focuses on financing infrastructure development in Asia and the Pacific region. India participates in AIIB's governance through its Board representation and voting rights proportional to its shareholding. Therefore, the answer is B.

Question 11

Under the Foreign Exchange Management Act (FEMA) 1999, which of the following transactions is classified under the Capital Account of India's Balance of Payments?

Accepted Answer

The Capital Account records all transactions involving the transfer of ownership of financial assets and liabilities across borders. FDI (Foreign Direct Investment) is a capital account transaction because it involves non-resident investment in domestic productive assets with the intent to establish lasting economic interest. FII (Foreign Portfolio Investment) similarly represents capital inflows through securities purchases. Remittances by NRIs and export of goods are current account items (services/income and merchandise trade respectively). FEMA 1999, enforced by RBI, governs both current and capital account transactions, but only capital account items involve cross-border asset ownership transfer. Therefore, answer is B.

Question 12

The Asian Infrastructure Investment Bank (AIIB), established in 2016 with headquarters in Beijing, has India as a founding member. Which of the following statements about AIIB's relationship with India is INCORRECT?

Accepted Answer

India is indeed a founding member of AIIB (established 2016, HQ Beijing) and holds significant voting rights as one of the largest shareholders. AIIB focuses on infrastructure financing in Asia and is complementary to the World Bank and Asian Development Bank (ADB). However, AIIB is NOT a subsidiary or operational arm of the World Bank — it is an independent multilateral development bank with its own governance structure, Articles of Agreement, and lending policies. The World Bank Group comprises IBRD, IDA, IFC, MIGA, and ICSID; AIIB is separate. ADB (established 1966, HQ Manila) is also independent and predates AIIB. Therefore, answer is C.

Question 13

Under FEMA 1999, a resident Indian exporter receives payment for goods exported to the UK but delays conversion of GBP to INR for 180 days, holding the foreign currency in an overseas bank account. Which regulatory framework governs this transaction?

Accepted Answer

This scenario involves a resident Indian holding foreign currency abroad, which is regulated under FEMA 1999 and RBI's Liberalised Remittance Scheme (LRS) or specific provisions for exporters. However, the key regulatory framework is the Foreign Currency Management (Resident) Regulations under FEMA 1999. Exporters are permitted to hold foreign currency earnings in overseas accounts for a specified period (typically up to 9 months from the date of export) before repatriation to India, as per RBI's Export of Goods and Services (Realisation of Export Proceeds) Regulations, 2015. This is NOT covered under the Liberalised Remittance Scheme (which applies to resident individuals for overseas investments/education, capped at USD 250,000 per financial year), nor is it a violation of FEMA. The transaction is specifically governed by Export Proceeds Regulations. Therefore, answer is B.

Question 14

India's quota and voting rights in the International Monetary Fund (IMF) determine its influence in global monetary policy decisions. As of recent IMF governance updates, India holds the position of which rank among IMF member countries in terms of quota share?

Accepted Answer

India is the 10th largest economy by nominal GDP and holds the 10th largest quota share in the IMF (as of 2023-2024 data). The IMF has 190 member countries, and quota shares are based on economic size, openness, and variability of current receipts. India's quota share is approximately 2.75% of total IMF quotas, reflecting its status as a major emerging economy. The top quota holders are typically the USA (16.5%), Japan, China, Germany, and France. India's voting rights are proportional to its quota share plus basic votes allocated equally to all members. This ranking is significant for India's voice in IMF decisions on global financial stability, SDR allocations, and lending programs. Therefore, answer is B.

Question 15

A bank's Balance of Payments (BoP) position shows a Current Account Deficit (CAD) of USD 50 billion against a GDP of USD 3.5 trillion. The RBI employs sterilisation of capital flows to manage this deficit. Which of the following best describes the RBI's sterilisation objective in this context?

Accepted Answer

Sterilisation of capital flows is an RBI monetary policy tool used to neutralise the impact of foreign capital inflows (or outflows) on the domestic money supply and inflation. When India experiences a CAD (current account deficit), it is typically financed by capital inflows (FDI, FII). These inflows increase foreign exchange reserves but also expand the monetary base, potentially causing inflation. RBI sterilises by selling government securities (open market operations) or increasing the Cash Reserve Ratio (CRR) to absorb the excess liquidity created by capital inflows, thereby preventing uncontrolled money supply expansion and inflation. The CAD/GDP ratio (50/3500 = 1.43%) is monitored as a sustainability indicator; a ratio below 2-2.5% is generally considered manageable. Sterilisation does NOT directly reduce the CAD itself — that requires structural reforms in exports/imports — but it prevents the monetary consequences of financing the deficit. Therefore, answer is C.

RBI Assistant Forex & International Banking

Forex & International Banking— Rules & Concept

Key Points to Remember

Exam-Specific Tips

Forex & International Banking — Practice Questions

60-Second Revision — Forex & International Banking